4. Real versus nominal GDP Consider a simple economy that produces two goods: cu
ID: 1141125 • Letter: 4
Question
4. Real versus nominal GDP Consider a simple economy that produces two goods: cupcakes and oranges. The following table shows the prices and quantities of the goods over a three-year period. Cupcakes Oranges Price Quantity (Number of cupcakes) 120 160 130 Quantity (Number of oranges) 190 200 195 Price Year 2012 2013 2014 (Dollars per cupcake) (Dollars per orange) Use the information from the preceding table to fill in the following table. Nominal GDP Real GDP GDP Deflator Year(Dollars) 2012 2013 2014 (Base year 2012, dollars) From 2013 to 2014, nominal GDP and real GOPsisl The inflation rate in 2014 wasExplanation / Answer
Base year is 2012, So in 2012 both nominal and real GDP will be the same
nominal GDP in 2012=Real GDP in 2012= Price of cupcake in 2012*Quantity of cupcake in 2012 + Price of orange in 2012*Quantity of Orange in 2012=1*120+2*190=$500
Nominal GDP in 2013=Price of cupcake in 2013*Quantity of cupcake in 2013 + Price of orange in 2013*Quantity of Orange in 2013=2*160+4*200=$1120
Rel GDP in 2013=Price of cupcake in 2012*Quantity of cupcake in 2013 + Price of orange in 2012*Quantity of Orange in 2013=1*160+2*200=Price of cupcake in 2012*Quantity of cupcake in 2012 + Price of orange in 2012*Quantity of Orange in 2012=$560
Nominal GDP in 2014=Price of cupcake in 2014*Quantity of cupcake in 2014 + Price of orange in 2014*Quantity of Orange in 2014=3*130+4*195=$1170
Real GDP in 2014=Price of cupcake in 2012*Quantity of cupcake in 2014 + Price of orange in 2012*Quantity of Orange in 2014=1*130+2*195=$520
GDP deflator=Nominal GDP/Real GDP
GDP deflator in 2012=500/500=1
GDP deflator in 2013=1120/560=2
GDP deflator in 2014=1170/520=2.25
From 2013 to 2014, nominal GDP increased while real GDP decreased.
The inflation rate in 2014=(2.25-2)*100=25%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.